According to a new AM Best report, life/annuity (L/A) insurers are driving new private equity investments, realising widespread book value gains.
This growth accounts for three quarters of all the industry book adjusted/carrying value (BA/CV) holdings.
After the initial uncertainty surrounding the pandemic in 2020, private equity grew substantially in 2021, having grown exponentially in the last few years.
In 2020, private equity grew by about $12bn from the prior year. In 2021, it nearly doubled, to $24bn.
Last year, US insurers’ holdings rose 25.8% to $117.4bn, from $93.3bn in 2020, following an already strong growth of 14.8% in 2020 and 10% in 2019.
New acquisitions in 2021 were also fairly concentrated in a few large organisations, with ten insurers by book value accounting for roughly 60% of acquisitions for the year, the report noted.
It found that MassMutual – whose products include life insurance – accounted for nearly 25% of acquisitions by book value and 10% of total deals.
Further, nearly a third of insurers had new investments totalling less than $5m, well below median $25m, signalling a more cautious approach by most of the insurers that do not have significant scale or in-house expertise with this asset class.
According to the report, insurers are still seeking higher returns and opportunities to diversify their portfolios, and the performance of private equity investments has been strong, with a low correlation to the public market.
Private equity investments span all stages of a company’s life cycle, each with its own unique sets of risks.
The insurance industry as a whole has the greatest exposure to leveraged buyout funds, comprising roughly 58% of its private equity investments, although allocations vary by segment. Venture capital accounts for another 29%, and mezzanine financing, the remainder.
All three allocations grew – life/annuity, property/casualty and health – driven largely by L/A insurers, though mezzanine funds grew by double digits for all three insurance segments.
In addition to the above, commitments for additional capital grew 13.1% in 2021 – after growing over 10% in five of the six previous years – to roughly $55bn, more than $31bn of which are by L/A insurers.
